Just whose recession is it anyway?

As we head toward the fiscal cliff and the markets from gold to bonds to stocks to oil start to price in a recession, the question becomes, just whose recession is it anyway? Is this going to be a Democratic recession or a Republican recession? Today President Obama may give a bit of a view on this fiscal cliff hanger in what could become a defining moment for the success or failure of his second term. Now some thought I was a little hard on the President and Harry Reid, even after Mr. Reid’s comments about a tax increase mandate, but in reality I was trying to point out the dangers of that rigid position especially when it comes to the implementation of a carbon tax that would drive an already struggling middle class into economic oblivion.

No matter who won the Presidency there would be worries about going over the so-called fiscal cliff. I had previously predicted that if Governor Mitt Romney had won, the stock market would have tanked as it would become clear that the QE bubble world of infinitely low interest rates would be coming to an end. The market would start to price in the return to high interest rates and there is no doubt the markets would feel the withdrawal pains of coming off that sugar high. Yet at the same time business’s that are sitting on record hoards of cash might be scared into making long-term investments as the rates to fund those long term projects would make it more expensive down the road. Potential real estate investors may choose to not wait to buy as the fear that rates will rise and they may miss their opportunity of cheap money. Banks may start to make loans again as they might be able to make more money by lending then playing the spread.

Whether I am right or wrong on that count at this point really does not matter. President Obama is President and it is his responsibility to lead, especially as the warning signs are clear that inaction means another painful recession. Even the non-partisan Congressional Budget Office is warning that failure to compromise on tax hikes and spending cuts would slash a whopping 3% off of the gross domestic product and drive the unemployment rate back up to 9.1%. They said that raising taxes on the so called rich would lower economic output by a small 0.1% but at the same time would wipe out about 200,000 jobs. Wiping out all of the Bush tax cuts would lower GDP output by 1.4% and about 1.8% next year. Wiping out temporary payroll tax cuts and unemployment would cost us 800,000 jobs.

If you look at the automatic spending cuts on defense and non-defense spending, economic output would fall by 0.4% and slash about 400,000. Temporary payroll tax cuts and unemployment benefits expire reduces end-of-2013 output by 0.7% and jobs by 800,000. The CBO says that to reduce the deficit entirely via tax increases would require a 20% rise in government revenues. Now while that may seem impossible, it may not be if the President focuses on energy.

Instead of a carbon tax, why not give the energy industry the chance to transform this economy? We are sitting on the biggest potential economic boom this country may see in decades and we need to move beyond ideology and old out dated thinking. Jack Welch of GE said that fracking can be bigger than the internet boom and he is right. The Technology boom that powered the go-go 90s can power our economy today. Instead of standing in the way of progress let’s allow the energy industries to drill, build pipelines. Let’s export energy and use these new technologies to power our economy forward today! The world envies our technology and our massive supply of oil and natural gas! Let’s build the cars and trucks of the future! Natural gas cars and trucks, lets burn the cleanest burning fossil fuel in the universe! We can’t give into the negative belief that we can’t grow our way out of this recession because YES WE CAN! We have the making of the biggest economic boom in decades if we choose to embrace it.

Take the leashes off and the tax revenue from all of these projects will erase our deficit as long as we hold the line on spending! Sure fix the tax code but don’t use it to divide us because at the end of the day this is not a Democratic or Republican recession, it will be an American recession! This is a recession that will hurt our friends and neighbors. There is a better solution that can end our economic pain. Let’s let the energy industry create the high paying jobs today! Not jobs for 25 years down the road. Let’s not impose punitive taxes on energy and carbon, but incentivize it. This is our best chance to replace high paying jobs that were wiped away after the housing bubble.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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